Stock Picking Based On Strong Fundamentals
We tend to base our investment decision on the past performance of a stock. However, it is not the best approach since company fundamentals can change during the period. Hence, it is risky to buy company stocks based only on historical data. Investors must incorporate fundamental analysis in their investment strategy.
One must compare stock price, P/E ratio, and fundamentals of a company with peers while investing.
P/E ratio (price-to-earning) is a critical determinant which tells you if a stock is overvalued or undervalued. Comparing P/E ratio will give you a fair idea of how expensive or cheap the stock is and the company’s ability to earn a profit.
Don’t Hurry To Book Profit
Sometimes investors get swayed by the smallest market news and rush to book for profit. But when you plan to invest long term, selling a good stock to book a small profit is the worst investment mistake. Investors must avoid costly mistakes if they want to build wealth through stock market investment.
Sometimes investors follow other investors and invest in stocks which others are investing without considering the fundamentals. This is called herd mentality, which refers to following a group without evaluating available information regarding the underlying stock. One must carefully avoid jumping the bandwagon if they want to last long in the stock market.
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